Green light: NAB (ASX:NAB) share price slips as ACCC gives nod to Citi deal

The bank isn’t catching bids today as the ACCC gives the green light for its proposal to buy Citi’s Australian consumer business.

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Shares in banking giant National Australia Bank Ltd (ASX: NAB) are in the red today, trading 0.23% lower at $28.39 at the time of writing.

NAB shares are tipsy this morning following a company announcement on its proposed acquisition of Citigroup‘s Australian consumer business.

The bank advised that the Australian Competition and Consumer Commission (ACCC) would not oppose its acquisition of Citi’s Australian consumer business after a review found the transaction would not substantially lessen competition.

Here are the details.

What’s the deal?

NAB first announced entered into a sale and purchase agreement with Citigroup Australia and proposed to buy its consumer business back in August. At the time, NAB touted the proposal as a “strategic growth ambition for its personal banking business”.

Both NAB and Citi overlap in the supply of consumer banking products and services in Australia, including credit cards, personal loans, and home loans for example.

According to the watchdog, evidence showed that the proposed acquisition was unlikely to raise competition concerns in any other areas of overlap, given Citi’s minimal market share in these markets.

The ACCC’s review also zoned in on competition in the supply of credit cards, as Citi is a substantial provider credit card services in Australia.

For instance, a focal point of the investigation was the provision of ‘white label’ credit card services. Following the acquisition, NAB will be the dominant white label credit card supplier to a number of commercial partners.

What are white label credit cards?

White label credit cards refer to card products issued by a financial institution as a partnership with a third party, usually a large company. Here’s the way it works:

  • Vendors such as NAB fund and issue credit cards to consumers via “third party distributors”, called white label partners.
  • The card provider “supplies unsecured credit funding, technology, human capabilities and other services to partners to enable them to market credit cards with their branding to consumers”.
  • White label partners are typically responsible for marketing and customer acquisition.
  • Functions like approvals are carried out by the card supplier.

What about competition?

The review also considered whether NAB’s acquisition of Citi would reduce competition in the entire credit card market, including offshoots such as rewards programs.

The ACCC concluded that NAB would still face a healthy level of competition from a range of credit card suppliers. It also noted that “NAB today is smaller in credit cards than its major bank rivals”.

As the bank reported, “the ACCC was particularly focussed on whether post-acquisition NAB might offer less favourable terms to these white label partners, such as smaller banks, with the aim of enhancing the position of NAB’s own branded credit cards”.

However, the ACCC found that NAB would be unlikely to have an incentive to act in that way after the acquisition.

ACCC chair Rod Sims concluded:

We are very concerned to ensure that mergers in the financial industry do not limit the competitive constraint provided by providers outside of the major four banks, however, in this case the ACCC did not consider there would be a substantial impact in any market.

NAB share price snapshot

In the past 12 months the NAB share price has climbed more than 17% after rallying almost 25% this year to date. In the past month, it has reversed course and is now 2.5% in the red.

Over the longer term, NAB shares have outpaced the S&P/ASX 200 index (ASX: XJO)’s return of around 12% in the last year.

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